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Tata Technologies Profit Plunges 96% on Labour Code Charge, Projects Strong Q4 Recovery

Engineering research and development firm Tata Technologies reported a 96% drop in third-quarter profit on Thursday, hit primarily by a one-time charge related to India's new labour codes, marking the company's steepest profit decline since its 2023 stock market debut.

The Tata group company posted consolidated net profit of 66.4 million rupees ($731,036) for the October-December period, down from 1.69 billion rupees a year earlier.
Tata Technologies booked a one-time exceptional charge of 1.4 billion rupees in the quarter after India notified new labour codes, which increased its gratuity and leave-related liabilities. The codes, which took effect in November, require employee wages to constitute at least 50% of cost to company, with benefits such as provident fund and gratuity to be calculated based on wages.

Several Indian IT firms have reported similar one-time charges to account for the new labour codes. Companies including TCS and HCLTech have previously disclosed such charges, while peer ER&D firm Tata Elxsi's profit was also affected by the regulatory change.

Despite the quarterly setback, the company projected strong near-term performance. CEO Warren Harris said in a statement that the firm is "poised for a sharp acceleration in Q4," expecting more than 10% sequential revenue growth.

"Margin headwinds from Q3 are behind us, and we expect to return to—and exceed—the Q2 adjusted margin run-rate," said CFO Uttam Gujrati.

Tata Technologies, which counts Jaguar Land Rover and Tata Motors among its largest clients, had indicated in October that it expected short-term tactical challenges and margin pressure in the third quarter due to "near-term temporary headwinds" and salary increases.

Revenue from the company's services segment, which accounts for 77% of overall revenue, rose 4.7%, while technology solutions revenue remained flat. Overall revenue increased 3.7% to 13.66 billion rupees.